CRISPR Therapeutics: Gene Editing Pipeline Candidates Make Progress, Shares Very Undervalued

CRISPR Therapeutics CRSP reported second-quarter results in line with our expectations, and its pipeline candidates are continuing to make progress. Collaboration revenue totaled $70 million, which was largely attributable to a research milestone achieved in connection with CRISPR’s agreement with narrow-moat Vertex Pharmaceuticals. We maintain our positive outlook and fair value estimate of $119 per share. We view the stock as very undervalued, currently trading in 5-star territory about 55% below our fair value estimate.

We appreciate that CRISPR ended the quarter in a healthy financial position with $1.84 billion in cash and marketable securities, which will help fund its research and development expenses. Investors reacted favorably to the quarter’s results, sending the stock up nearly 10%.

CRISPR Therapeutics provides long-term investors who possess a high degree of risk tolerance with pure-play exposure to novel gene editing technology. Given its early stage and lack of approved drugs, we do not assign it an economic moat. We see a very high level of uncertainty related to regulatory approvals for its early-stage portfolio and a range of potential outcomes. Despite our Very High Uncertainty Rating, we have a positive outlook for CRISPR due to its developing pipeline spanning many rare diseases. We think CRISPR has the funding and technological capabilities to potentially bring several of its pipeline programs to market.

CRISPR’s most advanced pipeline candidate is its gene-editing drug, exa-cel, which is being developed in partnership with Vertex as a one-time functional cure for two blood diseases: transfusion-dependent beta thalassemia and sickle-cell disease. We assign a 60% probability of approval to exa-cel and anticipate it could reach the market as early as 2024. We forecast exa-cel could hold strong pricing power and become a blockbuster opportunity. In CRISPR’s agreement with Vertex, CRISPR would have a 40% share of exa-cel’s sales.